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How to Qualify for a Business Loan with Bad Credit?

Business Loan with Bad Credit – Owning a business takes a lot of hard work, dedication, and financing. However, if you have bad credit, you may worry about your ability to secure the funding that you need to get your company off the ground and running. Fortunately, it’s possible to qualify for a business loan when you have bad credit.

Business Credit Score Examines Factors

Bad credit can make you more of a risk, which can limit the number of loans available to you. Online lenders may be more willing to extend business loans with bad credit versus banks or credit unions. Generally, you are considered as having bad credit when your FICO credit score ranges from 300 to 629.

A business credit score will examine certain factors, which include the following:

  • Your credit history
  • Your payment history
  • Your debt and utilization rate
  • The size of your business
  • Your industry’s level of risk

If your personal credit score is bad, you should familiarize yourself with your business credit score. According to Lantern by SoFi, you can do that by checking Dun & Bradstreet, but Experian and Equifax also maintain business credit.

What are the Effects of Bad Credit?

Of course, when your credit is bad, it can also cause any loans you can secure to be more expensive. You will have a considerably higher interest rate, so it’s important to explore a few different options and compare loans. You don’t want to go over your head and grab the first business loan extended to you if it would be impossible to pay it back.

In addition to the interest being stricter, bad credit can also affect the loan’s maturity date.

You will have to apply for a loan through the Small Business Administration, which allows individual lenders to determine whether they want to extend business loans with bad credit. A minimum credit score of 640 is needed.

How to Qualify for a Business Loan with Bad Credit?

There are steps you can take to improve your chances of being approved for a business loan when you have bad credit. Improving your credit score is the best way to get qualified. You can also do the following:

  • Create lines of credit and make your payments timely.
  • Get a business credit card and use it strictly for business purchases.
  • Budget your business’ spending and keep track of everything, including expenses, savings, and revenue.
  • Keep your debt to income ratio below 43 percent. This can show lenders that you’re able to repay.

Where to Get a Business Loan When You Have Bad Credit?

As you won’t be able to get a business loan from a bank or credit union when your credit is bad, you must look elsewhere. The following options are available to you:

  • Online lenders: If your personal credit score is as low as 500 to 650, you can secure a loan from an online lender.
  • CDFIs: Community development financial institutions or CDFIs may extend loans to struggling businesses in low-income communities.
  • Microlenders: A microloan is obtained from a nonprofit. You may be able to get a loan as high as $50,000, but this may be too little money depending on your situation.
  • Invoice factoring or financing: Unpaid customer invoices within your business can be turned into cash, which can help, but it should only be a last resort due to high interest rates.

Bad credit doesn’t have to prevent you from securing a business loan. When you explore all of your options, you’ll ultimately get the loan you need.

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